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Risk-off vibes from the earlier session carried on for the rest of the day, pushing commodity currencies much lower even as the dollar was on shaky footing.

The Loonie joined its comdoll buddies on the losers’ bench, dragged lower by a slump in crude oil, downbeat Canadian data, and NAFTA concerns from farmers.

Sterling was able to hold on to its gains and go for a few more, thanks to more positive Brexit-related updates. The yen also kicked higher a few hours into the session, likely taking advantage of dollar weakness despite elevated U.S. yields.

  • U.S. initial jobless claims at 207K vs. 214K forecast, 215K previous
  • Canadian Ivey PMI down from 61.9 to 50.4 vs. 62.3 forecast
  • U.S. factory orders up 2.2% vs. 2.3% forecast in August
  • U.S. July factory orders revised from -0.8% to -0.5%

Major Events/Reports:

More Brexit updates

What’s a trading day without a fresh round of Brexit-related headlines? Following a couple of rumors that circulated in the previous session, it was reported that Irish PM Varadkar is urging U.K. PM May to publish plans for the Irish border backstop “as soon as possible.”

As it turned out, Varadkar wanted enough leeway to “respond to it in a meaningful way” as the deadline looms, explaining:

“We want there to be decisive progress at the October summit, so that allows us to seal a deal in November.”

Meanwhile, European Council President Donald Tusk echoed these sentiments in saying that they remain ready to put a “Canada+++” deal on the table, which many hope would contain concessions on some security and foreign policy issues. He explained:

“The EU wants a relationship with the UK that is as close and special as possible. From the very beginning, the EU offer has been not just a Canada deal, but a Canada plus plus plus deal. Much further-reaching on trade, on internal security and on foreign policy cooperation.”

Former London mayor Boris Johnson, as well as former Brexit secretary Davis, gave this idea the thumbs-up as conservative Brexiteers piled on the pressure for May to consider an alternative to the Chequers proposal.

Upbeat U.S. data

Uncle Sam followed through on the previous day’s batch of stronger than expected reports, printing another set of figures in the green that were enough to shore up Fed tightening prospects.

Factory orders in August showed a 2.2% gain, a notch higher than the 2.1% consensus and a strong rebound over the earlier read, which was already upgraded from a 0.8% drop to just a 0.5% decline. Components of the August report revealed that the gains were spurred by stronger demand for aircraft once more, overshadowing the dips in business equipment purchases.

Initial jobless claims came in at 207K, lower than the earlier 215K figure and the estimated 214K reading. With that, the number of first-time claimants of unemployment benefits are hovering close to their lowest level in 49 years. Heck, the internet hadn’t even been invented then!

Yields elevated, stocks down

U.S. yields remained elevated, and this has been attributed to a sharp selloff in Treasuries likely stemming from yet another round of upbeat U.S. data. The yield on the benchmark 10-year note surged to 3.232%, its seven-year high.

Expectations of another Fed interest rate hike hit equities hard:

  • Dow 30 index is down 200.91 points to 26,627.48 (-0.75%)
  • Nasdaq is down 145.57 points to 7,879.51 (-1.81%)
  • S&P 500 index is down 23.90 points to 2,901.61 (-0.82%)

Keep in mind that leading jobs indicators have mostly hinted at a strong NFP outcome and that Fed head Powell has been chipper about economic prospects during his recent testimonies.

Major Market Mover(s):

GBP

The pound held on to its lead throughout the session, getting another kick higher from indications that the EU remains open to exploring alternatives to the Irish border backstop proposal.

GBP/USD kept climbing from 1.2981 to a high of 1.3042; GBP/JPY held on to the 148.50 area despite the selloff in other yen pairs; EUR/GBP slumped to a low of .8843, and GBP/AUD is up to the 1.8400 handle.

Commodity Currencies

The comdoll gang found themselves at the bottom of the forex heap as risk aversion extended its stay in the financial markets.

AUD/USD slumped from .7086 to a low of .7069; NZD/USD slid from .6511 to .6481; USD/CAD popped up from 1.2866 to a high of 1.2938; EUR/AUD is up to a high of 1.6271; EUR/NZD advanced from 1.7691 to 1.7772; GBP/CAD rose to a high of 1.6826, and GBP/NZD surged past the 2.0000 handle.

JPY

The lower-yielding yen managed to snatch some safe-haven flows away from the Greenback despite higher U.S. yields as dollar traders might be easing up ahead of the NFP release.

A few trade-related jitters on Mike Pence’s remarks against China also didn’t help the dollar’s cause. Before the end of the session, though, the Japanese currency returned some of these gains.

USD/JPY tumbled from 114.21 to a low of 113.63 before pulling up to 113.86; EUR/JPY fell from 131.39 to a low of 130.76 then bounced to 131.09; AUD/JPY dropped from 81.02 to a low of 80.38, NZD/JPY fell from 74.22 to 73.66, and CAD/JPY is down to a low of 87.93.

Watch Out For:

  • Chinese banks still closed for National Day
  • 12:00 am GMT: Japanese average cash earnings y/y (dip from 1.6% to 1.3% expected)
  • 1:30 am GMT: Australia’s retail sales (0.3% gain expected after earlier flat reading)
  • 5:00 am GMT: Japanese leading indicators (gain from 103.9% to 104.3% expected)